We’ve all been there — you create a winning campaign and decide to add more budget to keep the momentum going and improve your results. But instead of seeing an increase in returns, performance barely nudges forward. Or worse, it dips. When more budget doesn’t translate to an increase in your results, you know you’ve hit the point of diminishing returns.
Recognizing diminishing returns in marketing early on can save you from wasting money on campaigns that aren’t working. If you’re feeling stuck or worried about wasted ad spend, you need to know how diminishing returns impact marketing efforts, how to spot them and how to take back control.
What are diminishing returns?
Diminishing returns is an economic concept that describes the point when an increase in investment doesn’t produce proportional results. Basically, there’s a point where more effort, money or resources no longer makes as big of an impact.
Experiencing diminishing returns is like eating chocolate cake. At first, each bite is just as satisfying as the next, but eventually, you start to get full. Each bite becomes less satisfying the more you eat. And, if you eat too much, you might start to feel sick. If you were to graph your satisfaction after each bite, it would probably look something like this:
The diminishing returns of eating chocolate cake.
The same principle applies to digital advertising. If campaigns and channels are not optimized, they become less effective over time. This is a natural part of any campaign and a signal that it’s time to change your approach to avoid wasting resources.
How to recognize the impact of diminishing returns in marketing
Diminishing returns manifest differently across marketing channels. In social media ad campaigns, the audience is often inherently limited, so once you’ve reached them, increasing ad frequency doesn’t necessarily lead to better results.
With search ads, there’s a finite number of people searching for specific terms. Once you’re participating in every bid auction for a term, the only way to expand is by adding broader, less relevant keywords — often with diminishing effectiveness. These keywords aren’t as potent, so you can throw money into them but won’t get the same results.
Regardless of the channel, results plateau as returns diminish.
Ideally, you act before the diminishing returns saturation point.
You’ll typically see diminishing returns in the form of increasing cost per acquisition (CPA), declining return on advertising spend (ROAS), declining conversion rates or stagnant growth.
If possible, you want to pivot before returns flatten. Here are common signs that can indicate your strategy needs to be refreshed, or razed to the ground and rebuilt, before diminishing returns cause issues.
1. Ads are reaching less relevant audiences
Algorithms typically serve your campaigns to the most relevant people first. Let’s say you’ve spent $1,000 on a paid search campaign targeting branded keywords. Your campaign has a high conversion rate, so you increase your budget and expand to industry keywords. As a result, your ads reach audiences that aren’t yet familiar with your brand, so your conversion rates drop.
2. Your audience has ad fatigue
Diminishing returns also happen when an audience is tired of seeing the same ads. This is particularly common on social media platforms, where repetitive ads annoy users and make them lose interest. A brand spending $10,000 on Facebook at a 400% ROAS might increase its budget to $50,000 and watch its ROAS drop to 200% without new creatives.
Plus, if your audience is tired of seeing Facebook ads, you want to reverse the trend before they get tired of seeing your brand altogether and disengage across other channels.
3. More competition is inflating costs
Ads become more expensive as the number of advertisers wanting to reach the same audience increases. This drives up display metrics like cost-per-click (CPC) or cost-per-mille (CPM), ultimately diminishing returns.
For example, usually, more advertisers in the fitness space want to capitalize on their audience’s New Year’s resolutions to hit the gym more often. As a result, a fitness app spending $5,000 a month on Google Ads might find that during New Year's, its ROAS decreases because its CPC has increased.
Strategies for overcoming diminishing returns
Diminishing returns are usually a sign that you’ve become too comfortable with your strategy. Overcoming them will require disrupting your playbook.
Don’t think of diminishing returns as something to fix. Instead, treat them as a sign that it’s time to innovate. This could mean reallocating your budget across channels, developing fresh creative or even exploring new channels altogether. For example, if you have an extra $10,000 to spend, consider testing a new channel rather than doubling down on what’s already in your mix. Rethinking your media mix and audience approach can open new opportunities for growth.
1. Optimize for the efficient frontier
The efficient frontier is an economic concept created by economist Harry Markowitz. He introduced it in 1952 as part of his modern portfolio theory (MPT). The efficient frontier is an investor’s dream state. It describes an optimal allocation of assets in a portfolio so that investors take on the lowest amount of risk for the highest returns.
Finding the efficient frontier is like packing the perfect suitcase for a long trip. You need to balance packing necessities while avoiding extra weight. Efficient campaigns are like essential items in your luggage — useful and light. Oversaturated campaigns are more like packing two identical pairs of pants. The extra pants aren’t likely to come in handy, and the extra weight could slow you down.
Advertising at the efficient frontier is where resources are ideally allocated across campaigns and different marketing channels. Regularly assess your luggage to unload or pack campaigns and to combat channel saturation as necessary. Your goal is to maximize your returns while minimizing inefficient investment.
2. Invest in new paid channels
If returns are diminishing on one campaign or channel, you shift your budget to another. You could do so permanently or temporarily until you have a new strategy to re-engage your audience.
One brand, Outdoor Solar Outlet, was experiencing diminishing returns in Google ads. Their smart campaigns targeted a fixed audience. Eventually, their ad impressions reached the same users over and over again, so costs increased without proportional growth in conversions.
Logical Position, their performance marketing agency, expanded their strategy to include Microsoft Ads and retargeting on additional paid social channels. This generated more brand awareness and demand for their products, which led to more returns from their search advertising campaigns.
Outdoor Solar Outlet makes more while spending less with a fresh approach.
By expanding to new channels, Outdoor Solar Outlet could spend 26% less while increasing revenue by 25%.
3. Make new creative
If you suspect returns are diminishing because your audience is fatigued, refresh your ad creative by testing new formats, messages and images.
When FanDuel started to experience diminishing returns on its YouTube ads, it tested the most efficient budget. It tested the impact of spending 20%, 40% and 60% of its budget on the same audience — the sportsbook market. It found that spending 40% of its budget was the most efficient.
Their study also found that diversifying their creative strategy with new YouTube ads improved their results, allowing them to spend more on YouTube in the future. New creative allowed them to strike a balance between short-term goals and broader-reach goals.
After testing budget allocations, FanDuel was able to confidently improve their ads.
4. Invest in new audiences
Another way to combat audience fatigue is to expand your targeting to reach new audiences. This could be untapped demographics or geographics.
UNTUCKit noticed costs were rising on Facebook and Instagram, directly contributing to diminishing returns. The paid social space had become more saturated with brands that wanted to reach the same audience, and as a result, their CPC and CPA increased. They struggled to remain profitable because their existing campaigns couldn’t overcome these rising costs.
Their performance marketing agency, adQuadrant, used look-alike audience modeling to expand their targeting. They also launched new ad formats as soon as they were available, which kept UNTUCKit ahead of its competitors and increased click-through rates.
Lookalike audiences dramatically increase UNTUCKit’s ROAS when competition spikes.
Untuckit ultimately saw a 300% increase in new customer ROAS, an 1140% increase in ROAS during Black Friday and Cyber Monday campaigns and a 462% increase in ROAS for a stand-alone gifting campaign.
It’s worth mentioning that sometimes expanding your audience won’t be an option. This is especially true in niche markets where you can’t expand your audience without reframing your product entirely. In those cases, it might be worth focusing on other tactics.
5. Invest in organic channels
An alternative to investing in additional advertising channels or creatives is to focus on organic growth. Paid media can deliver short-term results, but relying on it alone can amplify your diminishing returns across your marketing strategy.
Investing in SEO, content marketing, community-led growth strategies or social media tactics that rely on micro-influencers could help you build a sustainable pipeline of people who are aware of your brand and keep diminishing returns at a minimum.
6. Spot diminishing returns early with triangulation
You can’t stop diminishing returns until you spot them. Triangulation is an advanced measurement framework founded on marketing mix modeling (MMM), which relies on statistics to determine whether or not channels are still efficient. When supported by multi-touch attribution (MTA), the two work together to flag when returns across channels or campaigns diminish.
The third pillar of triangulation, incremental testing, uses a combination of control and experiment groups to determine why returns are diminishing in the first place — whether it’s because of fatigue, changes in the market or something else.
Triangulation relies on MMM, supported by MTA and incrementality, to spot diminishing returns.
Say a new restaurant is running ads on Facebook, Google and TikTok. Despite increasing its spend, it hasn’t seen an increase in new customers. Marketing mix modeling shows that Google Ads still deliver strong overall ROI, but Facebook’s impact has plateaued.
Multi-touch attribution uncovers that its Facebook retargeting campaign is oversaturating an audience that already knows about the restaurant. As a result, the team shifts the budget from Facebook to TikTok to reach new audiences while they figure out how to re-engage their Facebook audience.
Turn diminishing returns into a catalyst for growth
Spotting diminishing returns isn’t a setback. On the contrary — it’s an opportunity to recalibrate your strategy for the better. You might learn even to welcome them, as they highlight the limits of your strategy and push you to adopt a broader growth perspective.
When you notice diminishing returns, you can adjust your spend to optimize for short-term gains, but don’t stop there. Instead, use this moment to question whether or not your deeper assumptions about your audiences and goals are correct. You want to make your campaigns efficient while also considering how your spending is impacting your results.
It’s not just about spending smarter — it’s about leaning into uncertainty, experimenting with bold approaches, challenging your existing narratives and getting comfortable with marketing strategies that will constantly evolve.